O/n dlr interbank rates indicated as high as 8 pct

LONDON, Sept 30 (Reuters) - Interbank dollar deposit rates were indicated as high as 8 percent early in London on Tuesday, reflecting banks’ scramble for dollars to get them over the quarter end and after U.S. lawmakers rejected a $700 billion financial rescue package.

That high of around 8 percent is four times the Federal Reserve’s 2 percent target rate and more than double the cost of borrowing dollars for three months as indicated by Thursday’s London interbank offered rate (Libor) fixing.

The U.S. House of Representatives’ late on Monday rejected the bailout bill and sent Wall Street shares plunging. European shares, having themselves tumbled on Monday after authorities were forced to rescue Belgium’s Fortis, the UK’s Bradford & Bingley and Iceland’s Glitnir, opened lower too.

For more on the fallout from Wall Street and deepening global banking crisis, see [ID:nLU84214].

Early in London on Tuesday the interbank cost of borrowing dollars overnight was indicated as high as 8.15 percent USDOND=, and was last posted around 6.5 percent.

The Bank of England said on Tuesday it will offer $10 billion in an overnight repo.

On Monday, the Fed extended and more than doubled its currency swap lines with major central banks around the world to $620 billion dollars in an attempt to provide enough dollar liquidity to the global banking system.

The interbank cost of borrowing dollars for three months was indicated in a rough range of between 3.90 and 5.50 percent USDOND= early on Tuesday, the upper end of that the highest in a year.

Monday's fixing of three-month dollar Libor by the British Bankers Association was 3.88250 percent USD3MFSR=, and ICAP's three-month dollar New York Funding Rate was 4.3750 percent USNYFR3M=.

The closely-watched TED spread, or the difference between these market-based dollar rates and three-month U.S. government borrowing rates, fluctuated in a wide range of around 320 to 440 basis points early in London. It was last hovering around 360 basis points.

That spread had ballooned to almost 500 basis points earlier this month, the widest in over a quarter of a century.